Bonuses will be disclosed, dollar figures adjusted

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The new executive director of the Utility Consumers’ Action Network plans to refile the nonprofit’s 2009 tax return to correct a series of errors and omissions discovered by independent accountants.

A draft of the document shows that UCAN for the first time will disclose bonuses collected by former Executive Director Michael Shames, who was forced out last year amid accusations of maintaining secret bank accounts and not disclosing the added pay to board members.

The high-profile nonprofit group was an advocate for ratepayers, battling utilities, phone companies and even the city water department. Shames left after a federal grand jury began a wide-ranging review of the agency’s business practices.

The revised federal tax return, which is expected to be submitted within weeks, also lowers the amount of revenue the agency received during the year ending June 30, 2010, from $3 million to just over $1.6 million.

The revised tax return also boosts reported grants and donations from $8,732 to more than $135,000 and lowers investment returns from more than $46,000 to about $22,500.

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Executive Director Donald Kelly said he was not sure if or when he would seek to amend earlier UCAN tax records, which also contain various errors and omissions.

“Right now I’m focusing on getting our current audit done,” he said.

At the UCAN board meeting this coming Tuesday, Kelly said, he will propose doing away with the bonus plan altogether.

Under federal law, nonprofits are not required to pay taxes on annual revenue. As a trade-off, the tax returns are open to the public so donors and others can see where charities spend their money.

The federal probe was sparked in 2011 by employees who claimed they had discovered secret bank accounts and believed that Shames collected hundreds of thousands of dollars in bonuses without disclosing them to the board or the IRS.

The employees have also raised questions about consumer complaints that turned into class-action lawsuits, generating huge legal fees and settlements. Several UCAN employees and directors said they were not told about the lawsuits, some of which resulted in significant monetary awards to the nonprofit.

Shames, who cofounded the consumer advocacy group almost three decades ago and was its leader until last spring, has repeatedly denied doing anything improper. He has said all of the allegations against him were investigated and found to be without merit.

“Most all of the matters you raise are going to be fully addressed in the legal complaint that I’ve filed against UCAN, Mike Aguirre and David Peffer in San Diego Superior Court,” Shames wrote in an email. “I believe it to be unethical to litigate these matters in the media.”

As to the tax filings that UCAN is having to revise, Shames said the group’s accountant was responsible for the errors. He said he supports revising the 2009 return “given obvious deficiencies in (the) original.”

Two former directors said they believe that Shames withheld key information from them over the years. Nielcq Lynch, who served on the board for 20-plus years before being removed late last year, said he regretted not asking more pointed questions when he had the chance.

“We were deluded into believing that Mr. Shames had everything under control and that he was above reproach,” he said. “We began to realize he wasn’t and by then it was too late.”

Kendall Squires, another longtime board member who left at the end of 2012, said he exercised his fiduciary duty as best he could.

“I most certainly do (approve of the board’s oversight), given the information we received and the inquiries we made,” Squires said. “It is also very clear that certain items were not disclosed to the board, items the board would not have had a reasonable opportunity to ascertain.”

Shames rejected the claim that he withheld information from the board.

“They were given the bookkeeper’s monthly and annual reports at every board meeting,” Shames wrote in another email. “These were sophisticated directors, most of whom were attorneys.”

UCAN disclosed it was the subject of a federal investigation in February 2012, at the same time it filed for legal dissolution in San Diego Superior Court. The charity was placed into temporary receivership. The dissolution request was later withdrawn.